Come July 1, student loan interest rates will double from 3.4% to 6.8%. That rate jump will only affect all new federally-subsidized student loans, not existing loans.
Lots of folks are looking for ways to remedy the high-interest situation. BusinessWeek reports that Ohio Senator Sherrod Brown has one plan that might do the trick.
One of the more common tactics to help some student loan borrowers is to get older private loans refinanced so that those borrowers can have better payment options. About 15% of student loan debt out there today falls into that private loan category. These loans typically have higher interest on them already, and have fewer options for payment adjustments that others have.
Senator Brown’s bill, called the Refinancing Education Funding to Invest (REFI) for the Future Act of 2013. It outlines a similar structure for refinancing student loans to that used during the recent financial crisis for certain markets. Essentially, it would create a credit facility that would encourage other private lenders to refinance student loans at lower interest rates. The bill suggests that funding for such a program could come from the Federal Financing Bank, the Federal Reserve Banks, or the Federal Home Loan Banks.
The bill is designed to expire in five years, and does specify that any credit facility created not cost the federal government anything. Like most things that have come before Congress for a while now, no progress has been made on any other plan to help he interest doubling on July 1. Options considered have included a plan that resets student loan interest rates each year, tying them to the rates at which the federal government is able to borrow money. So far that plan has not passed. The hope is that Brown’s plan will be seen as not costing anything, and thus has a prayer of actually getting passed.